Did you know that married couples were allowed to consolidate their debt under a program that existed from 1993 to 2006 which allowed a single monthly payment and often a lower interest rate. But it meant that each spouse was 100% liable for the other spouse’s debt. Moreover, borrowers who had these Joint Spousal Consolidation loans were often left out of most programs. We’ve long known of the problems plaguing borrowers in this “One Way In, No Way Out” program.
Borrowers were unable to sever the loans despite divorce, an uncommunicative partner, domestic violence or financial abuse. Borrowers also were not eligible for most of the best programs which required a Direct Loan because they were trapped in the FFEL Consolidation Loan.
Over the last few years, we filed adversary complaints in a bankruptcy court in order for these loans to be addressed often via a court approved settlement. This was the only way out toward an affordable and sustainable payment with an end in sight.
On October 11, 2022, the President signed the “Joint Consolidation Loan Separation Act,” to permit borrowers to separate joint consolidation loans.
Joint Spousal Consolidation Loans have only allowed separation via the Act signed 10/11/22.
The application is not yet available – it is expected to be out by summer of 2024. There is a comment period ending March 12, 2024. While the draft application is available, it may change following the comment period and should not be used.
STEP 1: There is a new procedure to provide “an intent to separate a joint consolidation loan”:
ED has indicated that FFEL Joint Consolidation Loan borrowers who take the necessary steps to separate their loans will receive the benefit of the one-time IDR account adjustment, even if the application does not become available until after the adjustment occurs in 2024. The adjustment will be applied retroactively for both borrowers when both applied to separate their joint consolidation loan. For separate applications, the remaining co-borrower who did not apply to separate the joint debt will not receive this benefit until and unless the borrower applies to consolidate the remaining loan into a Direct Consolidation Loan.
You must notify the ED Ombudsman Group of your intent to apply for separation of your joint consolidation loan by contacting ED’s Office of Federal Student Aid (FSA) at:
U.S. Department of Education
Office of Federal Student Aid
P.O. Box 1854
Monticello, KY 42633
STEP 2: You also need to notify your servicer that you intend to separate your loans once the application becomes available and ask for admin forbearance while you are waiting. If you do not notify your service or are unable to do so for some reason the On Ramp process will automatically consider you in forbearance for any missed payments up to August of 2024. Certainly, the application for separate these loans will be available by then.
Parent Plus Joint Spousal Consolidation:
If you have Parent Plus loans that are jointly consolidated with a spouse or ex-spouse, you still have time to separate these loans, and then follow the double consolidation procedure (completed by July 2025) to get into SAVE for any remaining years until forgiveness. Please see our Double Consolidation Sidebar or videos as there is a certain format to follow in an attempt to avoid the more costly ICR plan.
If you have a Joint Spousal Consolidation FFEL Loan and want to qualify for PSLF:
Non-Direct Loans are not eligible for PSLF. The recent PSLF Waiver permitted those with FFEL or Perkins Loans to consolidate their loans to Direct Loans. The deadline to consolidate to Direct loans is April 30, 2024 for purposes of the IDR Audit – but this is extended for those with Joint Spousal Loans. You need to continue working 30 hours or more for the non-profit or government employer while the PSLF review is underway until it is approved.
To have the PSLF program apply to your newly separated loans, there is one additional step that must be taken:
Submit a Reconsideration Request. If you have a joint consolidation loan, a specific process has been set up for borrowers with these loan types to be reviewed as a result of the new law. This process requires you to submit a reconsideration request and attach your signed PSLF form.
- If your employer was eligible and you were able to generate a PSLF form, print, sign, and have your employer(s) sign your form, you should then upload the PDF of your PSLF form as an attachment to the reconsideration request submission and put in the description: “I am a borrower impacted by the Joint Consolidation Loan Separation Act.”
- If you are waiting for ED to complete its review of your employer’s eligibility, submit a reconsideration request and include in the description, “I am a borrower impacted by the Joint Consolidation Loan Separation Act. I used the PSLF Help Tool and I’m waiting on the review of my employer.”
Practice tip: The online system Studentaid.gov will not recognize one spouse as having loans. Once the application becomes available, if your loans are not showing in the system, we recommend that you mail or fax your signed application to separate your loans to your servicer (and retain proof of sending via certified mail return receipt requested or the receipt of a successful transmittal).
IDR Waiver timing concerns: None, eliminated. Each borrower can obtain the benefits of the payment count adjustment after they are able to split their loans into a Direct Consolidation loan.
Jan 23, 2024 Update:
The Act allows co-borrowers to apply to separate existing loans.
Joint application option: each co-borrower applies for an individual Direct Consolidation Loan. Unless the co-borrowers agree on an alternate amount specified in a divorce decree, court order, or settlement agreement, each co-borrowers’ new individual Direct Consolidation Loan will be made for an amount equal to the co-borrowers’ portion of the remaining outstanding balance of the joint consolidation loan. The divorce decree will only apply if BOTH spouses apply.
Under the Separate application option: a co-borrower who certifies that they have experienced an act of domestic violence or economic abuse from the other co-borrower, or that they are unable to reasonably reach or access the loan information of the other co-borrower, may apply separately for a new individual Direct Consolidation Loan, without regard to whether or when the other co-borrower applies. In this circumstance, the applying co-borrower’s new Direct Consolidation Loan will be made for an amount equal to that individual’s portion of the joint consolidation loan, determined as described above for the joint application option.
March 12, 2024 deadline for comment period – this may lead to changes in the draft application available now which should NOT be used.
This is a lot of info I know. Bottom line, once the final application is made available in late Spring of 2024, you can finally separate these loans. In the meantime, feel free to reach out to us if you need guidance on what to do with your joint spousal loans, and what you can expect when the dust settles.